Remove the Litigation Cloud

The Low-Down

If you’re living in a newly constructed or a newly rehabilitated condominium or cooperative, it’s likely that you’re encountering disputes with your sponsor. Many of those disputes revolve around construction defects. Sometimes, litigation ensues. Litigation is always the last resort. It’s expensive and time-consuming. While a building is embroiled in litigation, its reputation is often impaired. Potential purchasers find out about the litigation and about assessments that are imposed to pay for it. Banks find out as well. Very often it becomes difficult, if not impossible, for unit-owners or shareholders to refinance their mortgages. Needless to say, this also has a negative impact on apartment values.

Often a sponsor will offer to come back and perform remedial work or get its contractors to come back and do it. In most instances, the board’s understandable first reaction is: “No way. We’re never letting them back in our building. They’re the ones who screwed it up in the first place. How could we bring them back to fix their own screw-up?”

The Weigh-In

There are ways that you can get over that visceral response. What we have found is a mechanism that protects the condo or co-op and, at the same time, enables the sponsor to come back and perform the work, which, in many instances, is more cost-efficient for the sponsor because it’s in the business of developing properties. What we have done successfully in a number of instances is to have an agreed-upon set of plans for remedial work that the sponsor’s architect and the board’s architect sit down and collaborate and come up with together. This is before an agreement is signed. An agreement won’t be signed until there’s an agreed-upon scope of work by both design professionals.

The Outcome

What happens is there’s a process whereby the sponsor is doing the remedial work, or having its contractors perform the remedial work, under the supervision of the condominium’s paid design professional, who is inspecting the work, making sure that it’s being performed in accordance with whatever was agreed upon. Then we have a second layer of protection. If the building’s design professional determines that the work is not being performed in accordance with what was agreed upon, point it out to the sponsor.

If the sponsor disagrees, the dispute then goes to a predesignated neutral party – an architect or an engineer – who gets brought in, takes a look, and says, “Yes, it’s being done in accordance with what was agreed upon,” or “No, it’s not. Here’s what you need to do to fix it.”

The Take-Away

The take-away for the board is that it has removed the litigation cloud that’s hanging over its building. You’ve avoided having to impose future assessments not only to fund the litigation, but to perform the work itself. Everybody sat down on the front end of this and agreed upon a scope of work. With the protections afforded to the cooperative or condominium, everybody is kept honest.